A thought on Price Discrimination and Wal-Mart

Just finished this previous post on price discrimination, and it triggered a thought.  Economists spend a  lot of time (particularly in a principles course) discussing market structures like monopoly.  We don’t spend enough on it’s reverse equivalent, monopsony.    In monopsony, there’s just one buyer, often inelastic supply, and barriers to entry of new buyers.  In monopsony or monopsonistic markets, the monopsonist (big buyer) gets very high profits and forces prices too low to be efficient.   Wal-Mart is very monopsonistic.  See the video “Is Wal-Mart Good for America?” for background on how much power Wal-Mart has a buyer.

The behavior Wal-Mart exhibits with it’s suppliers is consistent wit price discrimination, only it’s monopsonistic price discrimination.  Wal-Mart forces the price to the lowest physically possible for each individual supplier based upon internal data of costs of that supplier. That’s the monopsonistic equivalent of a monopoly seller knowing/discovering the preferences and utility valuations of a buyer.

Price Discrimination & Big “Black Friday” Sales

Arnold Kling explains partly why stores offer Black Friday (day after Thanksgiving) sales: price discrimination (see below the  fold).  Price discrimination is the practice of charging two (or more) different groups of buyers a different price for the same thing.  The idea is to charge a high price to people willing to pay a higher price, while only charging the lower price to people who wouldn’t buy it at all at the higher price.  Net effect: more revenue to the seller – a higher average revenue per unit and higher volume than if all customers were charged the exact same price. Continue reading

Fox News needs to go to school for more than just economics…

Um, I didn’t think “fair and balanced” was supposed to mean “ignorant of basic arithmetic”, but I guess I was wrong.  Fox News is that bad.

The Visual Display of Stupidby Kieran Healy on November 25, 2009Fox News Pie ChartI’d almost be happier if this turned out to be some kind of fake. But in the meantime, while you may think of it as a badly flawed and unfair pie chart, I prefer to see it as actually just an extreme version of a genuine pie chart.

via The Visual Display of Stupid — Crooked Timber.